Section 15.122 - Amendment of Certificate to Effect a Reverse Stock Split(a) Definitions. When these words and terms are used in this section they will have these meanings, unless the context clearly indicates otherwise. (1) Affiliate--A person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with a state bank seeking to effect a reverse stock split. A person who is not an affiliate of the state bank at the commencement of its reverse stock split will not be considered an affiliate of the bank prior to the completion of the reverse stock split.(2) Appraisal report--A report, opinion (other than an opinion of counsel), or appraisal from an outside party which is materially related to the reverse stock split, including a report, opinion, or appraisal relating to the consideration or the fairness of the consideration to be offered to shareholders in connection with the reverse stock split or the fairness of the transaction to the state bank or to unaffiliated shareholders.(3) Reverse stock split--An amendment to the certificate of formation of a state bank that achieves a reduction in the number of issued shares of the bank by requiring exchange of all issued shares in a particular class for a proportionately smaller number of shares, generally with a proportionately increased par or stated value. The equity capital of the state bank remains substantially the same.(4) Share--A unit representing ownership of at least part of the proprietary interests of a state bank, whether or not divided or subdivided by means of classes, series, relative rights, or preferences; and includes a stock or similar security; or a security convertible, with or without consideration, into such a security, or carrying a warrant or right to subscribe to or purchase such a security; or such warrant or right; or another security determined by the banking commissioner to be an equity security pursuant to the Finance Code, § RSA 31.002(a)(9)(B).(5) Unaffiliated shareholder--A shareholder of a share subject to a reverse stock split who is not an affiliate of the state bank that issued the share.(b) Procedure. Pursuant to the Finance Code, § RSA 32.101, to effectuate a reverse stock split in compliance with this section, a state bank must: (1) obtain the approval of its shareholders as required by law; and(2) obtain the approval of the banking commissioner pursuant to subsection (d) of this section, by filing an application setting forth the information and documents required by subsection (c) of this section and the filing fee required by § RSA 15.2 of this title (relating to Filing and Investigation Fees).(c) Application. A state bank proposing a reverse stock split transaction must file with the banking commissioner a written application seeking approval of the proposed amendment to its certificate of formation, stating the results of the vote of shareholders regarding the proposed reverse stock split and stating the percentage of shares of unaffiliated shareholders that were voted in favor of the proposed reverse stock split, or undertaking to supplement the application after conditional approval is obtained to provide shareholder approval information, setting forth or including as exhibits: (1) the original and one copy of the proposed amendment to the certificate of formation, to be processed in the manner required by the Finance Code, § RSA 32.101(c), and a description of the material terms of the proposed reverse stock split, including terms or arrangements relating to any shareholder of the state bank which are not identical to those relating to other shareholders of the same class;(2) any plan or proposal of the state bank, regarding activities or transactions which are to occur after the reverse stock split which relate to or would result in: (A) an extraordinary corporate transaction, such as a merger, reorganization, or liquidation, involving the state bank or any of its subsidiaries;(B) a sale or transfer of a material amount of assets of the state bank or any of its subsidiaries;(C) a change in the present board of directors or management of the state bank, including a plan or proposal to change the number or term of directors, to fill an existing vacancy on the board or to change a material term of the employment contract of an executive officer;(D) a material change in the present dividend rate or policy or indebtedness or capitalization of the state bank;(E) any other material change in the state bank's corporate structure or business;(3) the corporate purpose or purposes of the state bank for the reverse stock split, and alternative means, if any, considered by the state bank to accomplish the purposes and the reasons for their rejection, and the reason for choosing the structure of a reverse stock split and for undertaking the transaction at this time;(4) a certified resolution of the board of directors of the state bank approving the proposed amendment to the certificate of formation, accompanied by a statement whether or not the board of directors of the state bank reasonably believes that the reverse stock split is fair or unfair to unaffiliated shareholders that: (A) identifies each director, if any, that dissented to or abstained from voting on the merits of the reverse stock split, and describes, if known to the state bank after making reasonable inquiry, the reasons for each dissent or abstention; and(B) states the number and percentage of disinterested directors that voted in favor of the proposed reverse stock split;(5) whether or not the state bank obtained an appraisal report and, if an appraisal report was obtained, a copy of the appraisal report. To the extent not addressed in the appraisal report, the state bank must disclose: (A) the identity, qualifications, and method of selection of the outside party that prepared the appraisal report, any material relationship between the outside party or its affiliates and the state bank or its affiliates which existed during the past two years or is mutually understood to be contemplated, and any compensation received or to be received as a result of the relationship;(B) a summary of the performance of the appraisal report, including the procedures followed, the findings and recommendations, the bases for and methods of arriving at the findings and recommendations, instructions received from the state bank, and any limitation imposed by the state bank on the scope of the investigation; and(C) whether the appraisal report will be made available for inspection and copying at the home office of the state bank during its regular business hours by any shareholder of the state bank or any shareholder's representative who has been so designated in writing;(6) with respect to the class of shares to which the reverse stock split relates, the aggregate amount and percentage of shares beneficially owned by any pension, profit sharing, or similar plan of the state bank, and by each officer, director, principal shareholder, and subsidiary of the state bank;(7) with respect to any purchases of the shares made by the state bank since the commencement of the bank's second full fiscal year preceding the date of the application, the amount of the shares purchased, the range of prices paid for the shares, and the average purchase price for each quarterly period of the bank during this period;(8) to the extent known to the state bank after reasonable inquiry, any transaction in the class of shares subject to the proposed reverse stock split that was effected during the past 60 days by the state bank or by an officer, director, principal shareholder, or subsidiary of the state bank, including the identity of the person who effected the transaction, the date of the transaction, the amount of shares involved, the price per share, and where and how the transaction was effected;(9) to the extent known to the state bank after reasonable inquiry, a description and/or a copy of any contract, arrangement, understanding, or relationship (whether or not legally enforceable) in connection with the reverse stock split between the state bank (or an officer, director, principal shareholder, or subsidiary of the state bank) and any person with respect to any shares of the state bank (including a contract, arrangement, understanding, or relationship concerning the transfer or the voting of these shares, joint ventures, loan, or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents, or authorizations), naming the persons with whom these contracts, arrangements, understandings, or relationships have been entered into and giving the material provisions thereof, including information for any of these shares that are pledged or otherwise subject to a contingency, the occurrence of which would give another person the power to direct the voting or disposition of these shares, except that disclosure of standard default and similar provisions contained in loan agreements need not be included;(10) to the extent known to the state bank after reasonable inquiry, whether or not any officer, director, principal shareholder, or subsidiary of the state bank has made a recommendation in support of or opposed to the reverse stock split and, if so, the reasons for the recommendation;(11) whether or not appraisal rights are being voluntarily accorded by the state bank to shareholders in connection with the reverse stock split and whether or not any provision has been or will be made to allow unaffiliated shareholders to obtain counsel or appraisal services at the voluntary expense of the state bank and, if so, a detailed description of these appraisal rights or counsel or appraisal services;(12) a reasonably itemized statement of all expenses incurred or estimated to be incurred in connection with the reverse stock split, including filing fees, legal, accounting, and appraisal fees, solicitation expenses, and printing costs, and disclosure of the person who has paid or will be responsible for paying such expenses;(13) the proxy statement furnished to shareholders of the state bank in connection with obtaining shareholder approval for the reverse stock split, or a draft of the proxy statement to be furnished to shareholders in the event approval of the banking commissioner is sought prior to a shareholder vote; and(14) such other information that the banking commissioner considers necessary to make an informed decision to approve or reject the proposed amendment effectuating a reverse stock split.(d) Standards for approval. (1) The banking commissioner will process the proposed reverse stock split in accordance with the Finance Code, § 32.101(c). The banking commissioner will require that the reverse stock split be for valid business purposes of the bank itself, viewed as an entity distinct from its affiliates, and be accomplished through fair dealing with and a fair price to unaffiliated shareholders. The banking commissioner may impose conditions on approval, including a condition that an independent appraisal report be obtained regarding the value of the unaffiliated shareholders' shares, exclusive of any element of value arising from the accomplishment or expectation of the proposed transaction, and without minority discount. Share value determined by an independent and properly prepared appraisal report that is fully disclosed to bank shareholders or by the market price of publicly traded shares will be presumed to be a fair value unless extenuating circumstances to the contrary are specifically noted.(2) In the event approval of the banking commissioner is obtained prior to approval by shareholders, the state bank must file a statement with the banking commissioner certifying that any future event or condition upon which the approval of the transaction was conditioned has been satisfied and the date that each such condition was satisfied. Upon receipt of such statement, the banking commissioner will file the approved amendment to the certificate of formation in accordance with the Finance Code, § 32.101(c).(3) An issuer's purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, § 78j, 17 Code of Federal Regulations (CFR), §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). Such a transaction is also subject to the antifraud provisions of state securities law, see Texas Government Code, Title 12. Potential liability of the state bank to the selling shareholder can therefore arise if the state bank withholds or misrepresents material facts that the seller would have considered important in making the decision to sell. Consequently, a state bank must disclose to the shareholders in writing, prior to or simultaneously with the written notice of the shareholders meeting, all material information necessary to make an informed decision regarding the proposed reverse stock split. If the reverse stock split involves publicly traded shares and is subject to 15 CFR, § 240.13e-3, the registration statement required by federal law is considered to satisfy this disclosure obligation. Approval of an application under this section by the banking commissioner does not constitute a determination that the bank has complied with applicable securities law.(e) Exemptions. (1) This section does not apply to a reverse stock split that: (A) will not result in fractional shares;(B) permits each shareholder to choose to cash in the resulting fractional share by selling it to the state bank or to round up to the next highest whole share by purchasing fractional interests, provided that: (i) the specified sale and purchase prices are equivalent and reasonable; and(ii) no fractional share resulting from the reverse stock split is less than 10% of a full share;(C) is adopted by means of a unanimous written consent of shareholders; or(D) the banking commissioner expressly exempts after written application as not within the purposes of this section.(2) An amendment to the certificate of formation that implements a reverse stock split exempt from this section is filed and processed in accordance with the Finance Code, § RSA 32.101.(3) The availability of an exemption from the requirements of this section does not relieve a state bank from its obligation to comply with applicable securities law.7 Tex. Admin. Code § 15.122
The provisions of this §15.122 adopted to be effective April 16, 1997, 22 TexReg 3400; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 7, 2013, 38 TexReg 7687; Amended by Texas Register, Volume 44, Number 52, December 27, 2019, TexReg 8234, eff. 1/2/2020; Amended by Texas Register, Volume 49, Number 10, March 8, 2024, TexReg 1457, eff. 3/12/2024